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Elastic (ESTC) reported a strong 2Q26 with better-than-expected EPS and revenue, driven by substantial AI momentum and robust sales-led subscription growth, but shares sold off due to cautious FY26 guidance that aligns closely with consensus, implying potential second-half pressures.

• ESTC exceeded raised Q2 revenue guidance delivered on October 9, reporting revenue of $423 mln (up 16% yr/yr) and surpassed reaffirmed EPS of $0.56-$0.58 with EPS of $0.64.
• Sales-led subscription revenue grew 18% in reported terms (17% cc), reflecting strong commitments and consumption across cloud and self-managed.
• Elastic Cloud revenue growth moderated slightly to 22% yr/yr, down from 24% in the prior quarter and 23% in 4Q25.
• The company highlighted strong AI adoption with more than 2,450 customers using Elastic Cloud for GenAI applications, including 370 with annual contract values (ACV) above $100,000.
• Sales pipeline strength and visibility remain high, with about 80% of total business in the sales-led subscription model, and GenAI contributing about five points to overall growth on a 15% base outlook.
• ESTC secured several large enterprise deals over $10 mln TCV and achieved notable wins in security, observability, and AI areas, including a $26 mln contract with the U.S. Cybersecurity and Infrastructure Security Agency.
• The company continues to invest heavily in AI and vector search capabilities, unveiling new AI features and the Agent Builder product, aimed at simplifying AI agent creation and enhancing platform relevance.
• Q3 guidance anticipates revenue of $437-$439 mln (about 15% growth midpoint) and EPS in the range $0.63-$0.65.
• FY26 revenue guidance has been raised to $1.715-$1.721 bln (about 16% growth midpoint) with non-GAAP EPS guidance of $2.40-$2.46, backed by strong deal momentum and sales execution.

Briefing.com Analyst Insight:

Despite top-line strength, ESTC shares reacted negatively due to guidance implying 2H26 may not outperform consensus, keeping some caution amid competitive and macroeconomic uncertainties. The company's strong AI-driven capabilities, together with its open-source architecture and strategic partnerships, position it uniquely to capture market share in the growing AI infrastructure sector while maintaining cost efficiency advantages over competitors. This focus should enable ESTC to sustain its growth momentum and expand its footprint in enterprise AI solutions despite ongoing competitive pressures and macroeconomic risks.